In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses jobless claims and inflation. The two pieces of data released today affect the real estate market in both positive and negative ways. The weak job market continues to hold back income growth, while the lower inflation rate brings relief to consumers.

Insurance Claims for Unemployment Insurance Increase to 386,000

• The job market continues to disappoint. Initial claims for unemployment insurance rose to 386,000, up from the previous week’s claims of 380,000, which was also revised upward.
• The total number of continuing claims or the insured unemployed now stands at 3.278 million.
• If the weekly figures rise above 400,000, then it would suggest no net job creation and possibly net job losses. The data so far still suggest moderate growth leading to 1.5 million net new jobs this year. With jobless claims rising, the current unemployment rate of 8.2 percent is likely to remain unchanged or to increase.

Inflation Falls in May to 1.7 percent

• The good news is that consumers are getting a reprieve from a slower pace of price increase. The annual inflation rate decelerated to 1.7 percent from 2.3 percent in April. On a month-on-month basis, consumer prices are lower in May 2012 compared to April 2012.
• The decline in inflation was on account of lower energy prices. Taking out prices of food and energy, which are volatile items, the core inflation rate held steady at 2.3 percent. Core inflation has held up due to the increase in prices for medical care, apparel, and used cars and trucks. The cost of shelter services (e.g, rent) has continued to climb steadily at about 0.2 percent every month.
• If inflation continues to rise modestly and within the Fed’s target of about 2 percent, interest rates may hold steady for a while, which should continue to benefit homeowners.